1. Trend of Utility Affordability and
Impacts of State Utility Concessions in
Victoria
PhD(Public Policy) (work in progress)
Crawford PhD Conference 2013
4 November 2013
Noel Wai Wah CHAN
Supervisor panel:
Prof. Quentin Grafton, Dr Hoa Nguyen, Dr Karen Hussey,
Prof Michael Ward (advisor), Dr David Stanton (advisor)

2. Presentation outline
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Background
Research Questions
Theoretical Framework
Data and methodology
Preliminary results
Limitations & what’s next?
2

3. Background
3

4. Water price trends
Note: Consumer price index water and sewerage series,
deflated by the consumer price index for all groups at major Australian cities.
Source: ABS, Consumer price index, Cat. No. 6401.0
4

5. Electricity price trends
Note: Consumer price index electricity series,
deflated by the consumer price index for all groups at major Australian cities.
Source: ABS, Consumer price index, Cat. No. 6401.0
5

6. Gas price trends
Note: Consumer price index gas series,
deflated by the consumer price index for all groups at major Australian cities.
Source: ABS, Consumer price index, Cat. No. 6401.0
6

7. Change of real price index (1998 to 2013)
Water
Electricity
Gas
Sydney
42%
102%
65%
Melbourne
71%
72%
50%
Brisbane
85%
71%
80%
Adelaide
62%
96%
69%
Perth
33%
24%
86%
Hobart
33%
66%
32%
Darwin
111%
44%
31%
Canberra
88%
73%
69%
Australia
59%
78%
60%
Note: Consumer price index, deflated by the consumer price index for all groups at major Australian cities.
Source: ABS, Consumer price index, Cat. No. 6401.0
7

8. Distribution of water and energy expenses among
Australian households (2009-10)
Household Income Quintile
Q1
Mean gross household
income per week (AUD$)
367
Q2
785
Q3
1327
Q4
2,024
Q5
3,937
Average
1,688
Energy supply – domestic fuel and power (includes purchase of wood, heating oil etc)
2009-10
$/week
22.34
28.11
31.44
36.55
44.21
32.52
4.00
3.45
2.69
2.47
2.05
2.63
$/week
4.89
6.32
7.97
9.53
12.26
8.19
% expenditure
0.87
0.78
0.68
0.64
0.57
0.66
27.23
34.43
39.41
46.08
56.47
40.71
4.87
4.23
3.37
3.11
2.62
3.29
% expenditure
Water and sewage service
2009-10
Total energy and water
2009-10
$/week
% expenditure
Source: ABS Household Expenditure Survey (2011)
8

9. Victoria State utility concession policy
9

10. Victoria State utility concession policy
Water concession
Energy concession
Main and non-main water
concession
- 50% on water consumption,
sewerage disposal and service
charge up to a maximum annual
cap
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•
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Annual Energy Concession
Winter Energy Concession
Off-peak concession
Service to Property Concession
Medical Cooling Concession
Life support concession
Electricity Transfer concession
10

11. Research Questions
• What is the trend of utility affordability?
Increasing, decreasing, or unchanged?
• Who are the vulnerable groups with risk of utility
affordability problem?
• What are the impacts of State utility concession
to address utility affordability problem?
• Whether the utility concession policy effectively
target the vulnerable groups?
11

12. Theoretical Framework: Affordability analysis
• Affordability Utility-burden ratio (rh) (OECD 2003)
– Actual expenditure as a proportion of household income
• ‘Excessive burden’ if its expenditure share for utilities exceed
the critical ‘burden-threshold’ level r u
• Head count index (HI) is the fraction of households with rh ≥ r u
where N is the total number of households,
1(.) equals one if its argument is true, zero otherwise
12

13. Theoretical Framework - Benchmark
• UK Affordability benchmark
– 3% for water (Breisach 2004; DEFRA 2012)
– 10 % for energy (electricity and gas) (Boardman 1991; Fankhauser
and Tepic 2007)
– 13% for utility (total water and energy)
• Bottom 40% of the income distribution (equivalised
disposable household income) (Harding 2004)
– Exclude non-poor households who consume large amount of water
and energy (i.e. over-consumption)
13

14. Theoretical Framework:
Evaluation of Concession policy
(i) Change of utility burden ratio for concession HHs
(ii) Targeting analysis (Sumarto and Suryahadi 2001)
Utility burden ratio and Poverty status
High utility burden &
Low utility burden
poor household
ratio / non-poor
(bottom 40% of income
household
distribution)
Concession
State utility
concession
program
HHs
Success
targeting
Inclusion error
(leakage)
Non-Concession
Exclusion error
HHs
(under-coverage)
Success
exclusion
14

15. Data
• 2001 & 2007 Victorian Utility Consumption
Household Surveys
• 2013 data - adjusted from 2007 data
• Derived Gross Household Income
• Disposable Household Income
• Equivalisation process (OECD modified scale)
– Assigns a value of 1 to the household head, of 0.5 to
each additional adult member and of 0.3 of each
child.
15

16. Preliminary Results
16

17. Trend of utility affordability – Disposable household income
Utility burden
Distribution of Utility burden (water and energy),
under Disposal Household income
0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
2001
2007
2013 (lower bound)
2013 (upper bound)
1
2
3
4
5
6
Income decile
7
8
9
10
17

18. Trend of utility affordability – Equivalised income
Distribution of Utility burden (water and energy),
Under Disposal household income in OECD modified scale
0.25
2001
2007
Utility burden
0.20
2013 (lower bound)
0.15
2013 (upper bound)
0.10
0.05
0.00
1
2
3
4
5
6
7
8
9
10
Income decile
18

19. Decomposition of households in utility affordability stress
% Households in utility stress (2006/07) –
Melbourne vs Rural Victoria
Melbourne
Regional
Average HH income (AUD)
32,737
31,693
Average water burden ratio
Average energy burden ratio
Average utility burden ratio
0.019
0.061
0.078
0.022
0.057
0.077
% of HH with wburden >=3%
% of HH with eburden >=10%
% of HH with uburden >=13%
19.6%
12.3%
12.7%
25.2%
9.6%
9.3%
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•
HH under bottom 40% of income distribution,
All computation is based on equivalised disposable household income (2006/07)
19

20. % Households in utility stress – by family type (2006/07)
Couple
only
Average HH income (AUD)
Couple w/
children
Single
parent
Lone
Person
Group
HH
21,713
21,185
17,064
19,399
20,653
Average utility burden ratio
0.118
0.120
0.136
0.084
0.119
Average water burden ratio
0.030
0.029
0.032
0.025
0.029
Average energy burden ratio
0.089
0.092
0.107
0.063
0.092
36.6%
40.4%
43.1%
38.3%
42.6%
25.0%
37.4%
41.7%
10.3%
32.0%
23.1%
35.3%
45.0%
12.5%
39.9%
% of HH with wburden
>=3%
% of HH with eburden
>=10%
% of HH with uburden
>=13%
•
•
HH under bottom 40% of income distribution,
All computation is based on equivalised disposable household income (2006/07)
20

21. % Households in utility stress – by tenure type (2006/07)
Owner
outwright
Purchaser
Private
renter
Public renter
19,959
21,019
20,331
20,460
Average water burden ratio
0.113
0.029
0.127
0.033
0.090
0.019
0.078
0.020
Average energy burden ratio
0.084
0.094
0.077
0.064
36.1%
41.6%
42.7%
47.3%
23.4%
33.1%
27.4%
17.6%
26.4%
34.6%
20.1%
20.4%
Average HH income (AUD)
Average utility burden ratio
% of HH with wburden
>=3%
% of HH with eburden
>=10%
% of HH with uburden
>=13%
•
•
HH under bottom 40% of income distribution,
All computation is based on equivalised disposable household income (2006/07)
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22. % Households in utility stress – by concession type
Aged
Concession
Non-aged
concession
All
Concession
Nonconcession
20,789
20,227
20,491
20,083
Average utility burden ratio
0.084
0.103
0.094
0.123
Average water burden ratio
0.024
0.026
0.025
0.031
Average energy burden ratio
0.062
0.081
0.072
0.094
% of HH with wburden >=3%
31.2%
40.1%
35.9%
42.7%
% of HH with eburden >=10%
9.7%
26.2%
18.4%
32.7%
% of HH with uburden >=13%
12.3%
25.8%
19.5%
33.3%
Average HH income (AUD)
•
•
HH under bottom 40% of income distribution,
All computation is based on equivalised disposable household income (2006/07)
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23. Summary findings
• Decreasing trend of utility burden (across all household
income deciles)
• bottom 40% households has high utility burden in 2001
• Within the bottom 40% income distribution, larger proportion
of certain HH types with utility affordability stress
Water affordability
stress
Fuel affordability
stress
Utility affordability
stress
Melbourne vs rural
Rural HH
Melb HH
Melb HH
Family type
Single parent
Single parent
Single parent
Tenure type
Public renter
Purchaser
Purchaser
Concession type
Non-concession
Non-concession
Non-concession
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24. Evaluation of Concession policy
Reduction of utility expenditure and utility burden for concession
households
Water expenditure and water burden (hhwatcon=1)
Variable
Obs
Weight
Mean
wsbill
wsbillwcon
wsburden4
wsburdenwc4
932
932
932
932
711442
711442
711442
711442
540.3475
396.0082
.0136241
.0097458
Std. Dev.
221.1929
208.8816
.0099476
.0078371
Min
Max
13.2
6.6
.0005648
.0002824
1431.1
1389.3
.0704651
.0585774
Energy expenditure and energy burden (hhegcon=1)
Variable
Obs
Weight
Mean
egbill
egbillwcon
egburden4
egburdenwc4
1412
1412
1412
1412
1140390
1140390
1140390
1140390
1548.548
1438.286
.0358428
.0330528
Std. Dev.
653.1013
629.6529
.0246499
.0229791
Min
Max
180.4
58.3
.0044544
.0026638
8606.4
8390.8
.3897325
.3833695
.
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25. Target analysis of State concessions
Distribution of utility concession beneficial across income quintiles (2006)
Concession coverage (%)
Among HH in different income quintile
Water
concession
Energy
concession
Q3
Q4
Q5
(Q3 to Q5)
Q1 to Q2
(Q2 to Q5)
Q1
Overall
Utility
concession
Q2
Ratio
non-poor to poor
Q1
66.8%
69.3%
75.0% 76.5% 62.7% 49.3%
0.87
0.95
40.0%
46.1%
47.9% 45.9% 35.3% 24.0%
0.75
0.83
64.2%
65.3%
72.5% 73.6% 60.1% 48.3%
0.88
0.98
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26. Evaluation of Concession policy
Targeting analysis
Utility burden ratio and Poverty status
High utility burden &
Low utility burden
poor household
ratio / non-poor
(bottom 40% of income
household
distribution)
Concession
State utility
concession
program
HHs
Success
targeting
Inclusion error
(leakage)
Non-Concession
Exclusion error
HHs
(under-coverage)
Success
exclusion
26

27. Targeting outcome of Victorian utility concession to households in
utility stress and below 40% Income distribution (2006/07)
Success
targeting
Inclusion
error
Exclusion
error
(a)
(b)
(c)
Success Overall
exclusion success
(d)
Overall
error
(a) + (d)
(b) + (c)
Utility stress benchmark (13%) & hhucon = 1
Disposable income
Eq. Disposable income
1.6%
7.0%
65.1%
59.7%
0.9%
3.7%
32.3%
29.5%
33.9%
36.5%
66.0%
63.5%
37.2%
34.0%
5.6%
9.9%
54.4%
50.0%
57.2%
56.0%
42.8%
44.0%
1.4%
6.1%
58.6%
53.8%
59.7%
58.0%
40.3%
41.9%
Water stress benchmark (3%) & hhwcon = 1
Disposable income
Eq. Disposable income
2.8%
6.0%
Energy stress benchmark (10%) & hhecon = 1
Disposable income
Eq. Disposable income
1.1%
4.2%
38.9%
35.8%
27

28. Summary findings on State concession
evaluation
• Substantial reduction of water and energy bills, and
burden for eligible concession households
• Some proportions of HH in Q3 to Q5 also received water
and energy concession
• Target ratio with very low exclusion error, but higher
when adjusted with equivalised disposable income
• Target ratio with high inclusion error
 generous State concession policy and eligibility criteria?
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29. Limitations & future work
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•
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Refine data to reflect Victorian population
Combine datasets for pool regression analysis
Changed of Victorian concession policy in 2012, 2013
Affordability measures and standards - Burden ratio
versus other residual income or subjective methods
• Change of Victorian energy market (market offer vs
standard offer) (flexible pricing) (smart metering)
29

30. Thank you.
30

31. Limitations: Utility Affordability analysis
Utility-burden ratios (benchmark indicator)
Area 1
Non-under-consumption
Area 2
Willingness deficiency-related
under-consumption
Area 3
Under-consumption due to
deficiency of willingness and
of ability
Area 4
Purely ability deficiencyrelated under-consumption
Source: Gawel and Bretschneider (2011)
Concept of Indigence
Area
Burden share =
1a + 2a + 3a
(traditional) unaffordability +4a
Rationale
Household spends more on utility good
consumption than the target ratio
Budget restraints
3+4
Under-consumption
2+3+4
Household earns less than needed to
afford the subsistence bundle
Household consumes less than required
31

32. Theoretical Framework: Affordability analysis
– Utility-burden ratios (benchmark indicator)
• Actual expenditure as a proportion of household income (OECD
2003; Tepic 2008)
• Twice the median approach (Moore 2012 on fuel poverty)
• High cost/Low income approach (Hill 2011 on fuel poverty)
– Residual income methods (Budget standard approach)
• Residual income methods (Stone 2006 on shelter poverty,
Burke et al. 2012 on housing affordability)
• Potential Affordability indicator (Miniaci et al. 2008)
– Subjective approach
• E.g. Temple (2008) for housing affordability study; Price et al.
(2012) for fuel poverty study
32

33. Victoria concession policy
Eligibility
Card holders of Pensioner Concession Card, Health Care Card,
DVA Gold Card
Water Concession Concession entitlements
2001
PCC/DVA card holders + owner occupiers:
Concessions of 50%, up to a maximum of $67.5 per year, on service
charge and up to $67.5 per year on volume charges.
HCC card holders and tenants with PCC or DVA card:
Concessions of 50% up to a maximum of $67.5 per year, on water
usage charges and where applicable, up to $67.5 for sewerage
disposal charges.
2007
All concession cardholders: 50% on water consumption, sewerage
disposal and service charge up to a maximum annual cap. The cap in
2006-07 was $154.
2013
Same rule as 2007, cap of max rebate $277.00 for 2012-13.
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34. Eligibility
Card holders of Pensioner Concession Card, Health Care
Card, DVA Gold Card
Energy Concession
Concession entitlements (2006-07)
Annual Energy
Concession
17.5 % discount off household electricity bills all year round *
Winter Energy
Concession
17.5% discount off mains gas on usage from 1 May to 31
October of each year *
Off-peak concession
13% reduction on the off-peak on electricity bills
Service to Property
Concession
reduction on the electricity supply charge for concession
households with low electricity consumption
Medical Cooling
Concession
17.5 percent discount off electricity costs over a six month period
from 1 November to 30 April cardholders with multiple sclerosis
and other qualifying medical conditions
Life support concession
quarterly discount on electricity bills for cardholder's household
uses certain life support machines
Electricity Transfer
concession
full waiver of the fee when there is a change of occupancy at a
property
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